Starbucks CEO Howard Schultz made headlines recently by promising to hire 10,000 refugees in response to Donald Trump’s immigration ban, prompting a #BoycottStarbucks social media backlash from supporters of the President’s policy.
Schultz, however, can afford to shrug off the uproar: Not only will he step down as CEO of Starbucks in two months, he’ll get to keep his paycheck when he does. Having taken home $21.8 million in 2016, Schultz, whose net worth is an estimated $3 billion, has long operated under a promise by Starbucks that he’ll continue to make at least as much as the company’s CEO, even if he doesn’t have to do the job anymore.
The revelation, buried in a recent Starbucks securities filing, comes after Schultz announced in December that he would pass on the CEO title to the company’s current president and COO Kevin Johnson in April. Schultz himself will stay on in the newly created role of executive chairman, “focusing full-time,” he explained in the announcement, on developing a chain of upscale coffee shops known as Starbucks Reserve Roasteries.
Although Starbucks won’t disclose how much Schultz was paid in 2017 until early next year, the filing offers a major clue, saying, ” Mr. Schultz will continue to be compensated as an executive officer upon his transition to the role of executive chairman on April 3, 2017.” The term executive officer distinguishes Schultz from the directors on the board who are not employees, whose annual pay is capped at $260,000.
While it’s technically possible that Schultz’s salary could be reduced to a level befitting a lower-tier executive officer—Starbucks’ lowest-paid executive officer made about $4.4 million in 2016—compensation experts say that’s highly unlikely. “I would expect that Howard’s base salary and annual bonus opportunity will not be reduced for 2017,” says Brian Foley, an executive compensation adviser.
Company paying double
The biggest indication that will be the case: When Schultz temporarily gave up the CEO role the last time around, in 2000, Starbucks continued to pay him as if he still occupied the corner office. The company later disclosed in a proxy filing that the board at the time agreed to continue paying Schultz at least as much the CEO, who replaced him.
Such a policy meant that for every raise the actual CEO got, the company paid double, eating up larger and larger chunks of earnings that might otherwise have gone to Starbucks shareholders. By the time Schultz resumed the CEO job in 2008, he was already pulling in about $10 million per year. Today, Schultz makes more than twice that much, with a base salary of $1.5 million. (To Schultz’s credit, he docked his own base salary to $6,900 for six months during the recession in 2009. But he still made about $644,000 in salary for the full year, and more than $12 million in total compensation.)
Outside of Starbucks, Schultz’s type of comfortable arrangement—where a CEO can walk in and out of the job without worrying about giving up any of his salary—appears to be unprecedented. Even other CEOs who have shifted to an executive chairman role, stepping down to step up, so to speak, have taken some sort of pay cut.(Fortune)
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